 Some of this material overlaps a bit with Professor Higgs lecture that you some of you just heard on the FDA and a quality assurance and that kind of thing so I Apologize in advance for any overlap, but I have learned from teaching for some years that Students usually benefit from hearing things twice. So if there is some overlap, I hope you'll excuse me Shocked when I get my senior undergraduate students and I have to Remind them of the concept of opportunity cost and that kind of thing. So It's very distressing and demoralizing to a professor to realize that something you taught three years ago has a half life of about three weeks at most and Anyway, what I'd like to talk with you about today is health economics I had an interest in health economics from pretty much the very beginning of my study of economics as an undergraduate and This is because my father was a physician and he Was active in a group called the American Association of American Physicians Insurgents or AAPS Which is a great free market physicians organization And they've been around for a long time doing some really good work counter to the far more status AMA so If you're interested in some resources by physicians for physicians on issues such as those I'm talking about today the AAPS Website is great, and I've got some material in here in which I quote from them I'd like to do this in two parts. The first is on pharmaceuticals and profits and regulation I Would like to just mention as a kind of a preface here Bob Higgs book that he edited Called hazardous to our health FDA regulation of health care products excellent resource on this material and I'm sure that There's a lot that I would say that I would agree with on on from from that book Drug companies in the United States and elsewhere enjoy government granted privileges They have patent protection. They have the FDA protection against competitors So there are barriers to entry we'll talk about some of those Hundreds and hundreds of millions of dollars that it costs to bring a new drug to market And who does this benefit but those who already have a drug treating the same kind of illness That's already in the market Then there are these ordinary corporate protections. We've unfortunately gotten used to some of these things and That tends to keep competitors out of the market as well and also limit the degree to which Pharmaceutical companies can be Disciplined by the market for failure to do what consumers want so in if you listen to the lecture by Ronald Hamo we earlier this week I think that was on Tuesday The audio of that is already online He did some great work on the Canadian Medicare type system that they have and I'll refer to that again later But Canada and some other countries have a kind of a monopsony system in which the government is the only buyer effectively of Drug, so what are the effects of this? Miller Benjamin in North in a A book called the economics of public issues Neat little book with a number of short treatments of various economic issues They say that a single government agency in each country acts as a monopsony buyer of health care services on behalf of everyone Individuals are even either prevented from buying health care on their own or limited by government rules as to what they may buy Like other monopsony's the national health insurance systems force down the prices of the goods They buy such as drugs medical devices and Physicians and nurses services this in turn Reduces the quantities of those goods and services that suppliers will provide particularly in the long run The bad news at least if you are a consumer of health care services is that less health care is provided Let's talk a little bit about advertising Advertising for an approved Drug for a newly discovered use violates FDA rules I'm not even talking about advertising a new drug which already has its own hurdles to jump over But we're talking about a drug that's already been on the market for some other purpose and The purveyors of this drug think well, maybe there's something else of this drug can do that We hadn't initially gotten FDA approval for well You're violating FDA rules if you take this old drug and you advertise a new use for it without getting the FDA approval and some companies are simply not going to find it economically advantageous to Revisit that approval process for each new use If you don't think that drugs have multiple uses you're mistaken go take a look at aspirin which I will use later as an example of this The new use whatever that is might be relatively unknown if it's not advertised Advertising is a provision of information to consumers About the possibility of possible uses of a product new drugs According to Tom DeLorenzo do consumers no good if they do not know about them Advertising restrictions imposed by the FDA therefore prop up the profits of incumbent drug marketers at the expense of newcomers in the industry and At the expense of consumers so the FDA is Essentially working on behalf of the existing pharmaceutical companies In a way that prevents innovation prevents things that will come along that could come along that would benefit consumers and the United States has a relatively Free situation in this regard other countries are even more restrictive Canada would be a good example of this What about aspirin well I mentioned this earlier, but in 1988 At a meeting in the offices of the FDA commissioner companies making aspirin We're told that they could not advertise the benefits of Aspirin in reducing the risk of a first heart attack if they did they were told explicitly that the FDA would bring legal action So as a consequence There was a long-term ban on advertising aspirin for For prevention of heart attacks which Because of the absence of that information on the on the part of consumers led to Tens of thousands of needless deaths per year. This is from Thomas soul in his book applied economics quoting Paul Rubin and you can take a look at the presentation when it's posted later and and look up some of these references The FDA is well known for testing drugs and testing foods and making sure supposedly that they are safe for Consumers, but they can make two types of errors when they do this testing. They can first Reject the drug that has benefits greater than the cost That's called a type one error Or they can accept a drug that has cost greater than the benefits That's a type two error. What's happened with the FDA is that they have put a an inordinate amount of Attention on trying to reduce those type two errors The matrix here shows Two possibilities the state of the world either the benefits the new drug exceed the cost of the cost to see the benefits The FDA can then accept or reject the drug There's no negative effect if the benefits exceed the cost and the FDA passed the drug I will add a little caveat there that getting the drug accepted by the FDA did probably cost some hundreds of millions of dollars in some cases possibly more and That itself has a detrimental effect as we'll see but if they end up accepting a drug that doesn't have a negative effect then You say well apart from the cost of getting the regulation Jumping the hurdles of the regulation at least we wound up with the drug on the market There's also no negative effect if a drug which had cost greater than benefits is kept off the market now How do we know if the cost exceed the benefits? I would argue that the market is Exceedingly good at trying to sort out which drugs have costs that exceed benefits and which ones have benefits that exceed costs I would not say that just because you discovered that a drug has some negative side effects that this means that the drug should not be on the market Typically people don't like to put things into their bodies that do them some net harm And I'll point out in my talk later today on consumer product safety there's an article in the fall 2010 issue of the independent review on Food safety regulation that that makes a good point about how Good the market is at sorting these kinds of things out But there are two types of errors as I said one where the FDA accepts a drug where the costs exceed the benefits and one where they Reject a drug where the benefits exceed the cost and this is just from the conventional understanding of what the FDA is supposed to be doing according to the the the mainstream view of regulation, but they they cannot even meet the standard of their own of The of the mainstream view of what regulation ought to be doing The consensus in the economics literature, and this is just mainstream economics literature suggests that the FDA has placed too great of an emphasis on type 2 errors so they're trying to avoid the problem of admitting a drug to the market that later Indicates some kind of major side effect the FDA will Toad out their band of Thalidomide as An example of the kind of thing that the FDA is supposed to be doing and look how great we are we ban Thalidomide and Europeans allowed it. We prevented all these birth defects Now most of you are too young to remember what Thalidomide was or to have read about it even and it's a Drug that was given for morning sickness and pregnant women and it turned out to cause Birth defects your birth defects and the FDA says we'll see this is why we're here We're here to keep people from consuming things that are bad for them Well what we that that's what you know to use the term from Bastiat. That's what seen what is unseen are the type 1 errors Where they fail to approve or delay the approval of a beneficial new drug So in the process of trying to do all of this testing and evaluation in clinical trials and so forth to try to keep a drug Off the market that has side effects that are too severe in the judgment of the FDA They aren't they are delaying inevitably drugs that would have a positive effect one political factor According to this Goosey Harrington and Vernon is that the victims of those type 2 errors are more readily identifiable you can say well Here are the pictures of the victims who had the birth defects because of the drug that that that caused them all right, so the people who die or suffer Because of a drug not being admitted to the market are much more difficult to identify now when AIDS came onto the scene and AIDS victims said well We have for all for for what we know about age. We have a death sentence on our heads. We're this is a fatal disease You might as well let us try a drug to combat AIDS and While you're sitting there testing this over eight or ten years Many of us are going to die. Why not let us at least give it a shot and so this Led to a an improvement at least in the speed with which the FDA would at Approve certain drugs a kind of a fast track, but it by no means permeated the FDA's policy on these things and The FDA still produces enormous delays The FDA is under this kind of inevitable political pressure as a bureaucracy If the FDA approves a drug that's later found to be unsafe in any way then use media the public politicians will all say well The FDA behaved badly they committed an error But if the agency delays when reviewing applications the patients who need these new treatments are worse off and May even die waiting for the FDA to act But the FDA is only criticized for approving a so-called bad medicine rather than Keeping a beneficial one off the market so they have this kind of culture at the FDA of Requiring longer trials stricter monitoring after they market the drug Initially, and then they're more ready to pull a drug off the market at the first sign of any kind of negative side effect which leads to Fewer options on the part of patients Rising drug prices unnecessary suffering and unnecessary death How did it come to be this way? Well the FDA didn't always have the power that it now does in 1906 The FDA's rule was basically that they were not going to approve medicines that had a substance harmful to your health So if you tried to market something that arsenic in it, they would probably say well Don't think that should be on the market 1938 they said well manufacturers are required to demonstrate safety Yeah, if you've had your basic economics courses you understand that Economists will not see safety as an either or Concept it's not either the drug is safe or it's unsafe. It's a sliding scale. Okay, there's no perfectly safe drug You can kill yourself by drinking water if you wanted to I mean drugs All have some kind of side effect consumed in enough quantities So it's a trade-off really how how safe do you want the drug to be? It's not as though the FDA is able to discover that some drug is unsafe or some other drug is safe there There's there's a sliding scale how how much of a what what's the appropriate trade-off? There's no way for the FDA to know that but in 1938 manufacturers were required to demonstrate safety 1962 came the the the change in regulation that that Really added to the length of time that it took for the FDA to approve a drug because the FDA then had to Then began to say we're only going to approve a drug if it's safe and effective Well, how effective is another question kind of like how safe? But now you can't just approve a drug that's harmless and ineffective You have to show that it does the thing for which it is intended To the FDA satisfaction Prior to the 1962 The FDA was required to approve within a hundred and eighty days unless the drug was not proven safe After 1962 no time limit. So as a result of this the drug approval process was lengthened Prior to 1962 the time from filing for a new drug to approval by the FDA averaged about seven months By 1967 five years after the regulatory change. It was 30 months by the late 1970s It was eight to ten years and along with this extension in the approval process Came an increase in the cost The hurdles are increasing in height It's becoming more difficult for the pharmaceutical company to satisfy the FDA and the approval cost jumped into the hundreds of millions of dollars About said hundreds of billions. I guess I'm thinking about national debt or something Sceptra for example, this is an antibiotic. There was a five-year delay in introducing this to the US market one estimate by George Hitchings Indicates that this delay cost 80,000 lives in the United States I my PowerPoint here says he was a Nobel laureate although we understand that the That has lost some of its meaning lately once they gave the Nobel Prize to Paul Krugman I figured it's not exactly a feather in your cap anymore, but Beta blockers lag in the FDA approval there may have cost 250,000 lives in the United States So this is the unseen part of that the scene in the unseen you see the pictures of the thalidomide victims You don't see the victims of the heart attacks Caused or the people who died of infection because the FDA delayed approval of a beneficial new product Rotavirus Almost all children contract rotavirus by the age of five which produces about 55,000 hospitalizations and 20 to 40 deaths a year in 1998 September 1998 the FDA approved rota shield Vaccine for rotavirus CDC then recommended that this be Used for all infants within a year of the FDA's approval All right, so now we're combining two regulatory agencies We've got the FDA saying this is fine and then you've got the CDC putting pressure On the adoption of this new drug Well over a million children were immunized there were two deaths and 99 cases of bowel obstruction that resulted from That were reported to have resulted from this vaccine But we know we think we know that the system for reporting these adverse effects Catches maybe 10% of the actual vaccine caused into injuries. So Multiplying the two deaths by 10 and we get about 20 possibly they were actually caused and that a number of other Injuries or hospitalizations from the vaccine alone. So it it's not real clear on balance whether the vaccine actually helped Now I'm I'm not anti all vaccines But once you combine the FDA saying these things are are safe and effective And then the CDC putting intense pressure on the adoption of these things All right, the whole government school system saying You have to have X number of vaccinations before you your child can enter the school And we're going to require a child to go to school And this this further Encourages the use of these things that the FDA has said are appropriate One member of the CDC committee who recommended that the rotavirus vaccine be added to the vaccines for children program holds a patent on the rotavirus vaccine Was paid by a large pharmaceutical company to develop the vaccine and did not recuse himself from voting on issues surrounding the vaccine Can you say conflict of interest? All right It's always Surprising to me when I'm not surprising anymore, I guess but it's it's Distressing when people say well, you know private industry is There's all these conflicts of interest and principal agent problems and so forth, but the government, you know fix all of that Several members of the FDA and CDC committee's own stock and the drug companies and stood to gain from government immunization requirements Vioxx now the FDA is on the one hand, it's Delaying approval of beneficial drugs and the only other hand it's got drugs that it approved and Then information that may come out later about the risks of the drug It it sits on this information. It doesn't disperse it as we expect the FDA or we would like to expect the FDA to do So there was a Lancet study revealing viox problems. This was delayed and Information was essentially suppressed David Graham who was a 20-year FDA employee Said what I believe they were trying to prevent from reaching the public was our estimates of the number of people who suffered heart attacks or died because of viox use He said I believe there were multiple levels of FDA management who wanted to keep the information of the magnitude of harm caused By viox from the public and wanted to damage my credibility as a scientist The whistleblower gets suppressed As he's trying to say that the FDA has approved a drug that ends up later With indications of being hazardous That information is The FDA sits on this information He said I would assume the reason this happened is because the FDA sees its mission Primarily as one of serving the pharmaceutical industry with viox the FDA looked the other way in America paid the severe price for it You want more on this this? Came largely from an article by Dale Steinrich that's posted on mesas.org Steinrich goes on to say that it turns out the ten members of the FDA panel who voted for both viox and Bextra Not only had ties to their makers, but their votes were crucial for securing the favorable votes on the panel for both drugs Again conflict of interest it appears $800 million for a new drug to be approved by the FDA These are this is sort of the broken window problem again You could have there really an opportunity cost problem. You could have used that eight hundred million dollars somewhere else By increasing the hurdle you're delaying the introduction of a new beneficial possibly beneficial drug you're also Costing lives simply because eight hundred million dollars can do a lot of good things to improve human health and well-being Some studies indicate that for about every 10 to 17 million dollars of the drop in income one life is lost on average We don't know exactly who this is or where this is or how this is but when people's incomes fall We do know that their life expectancies are shortened Well here countries tend to have longer life expectancies So if regulation is imposing these rather significant costs on the economy We know that life expectancies are going to be shortened. We can count Not particular people we can we can say that lives are going to be lost take eight hundred million dollars divide by 17 Million dollars and we get 47 lives lost Approximately just from the financial cost of drug approval This is not counting to the lay would lay as we've seen for that Beta blockers might have been quarter million a quarter million lives lost another problem that the FDA presents is that individual patients have different situations different Physiologies Different conditions that even their family situation makes a powerful difference in the effectiveness of a drug Conco and Arnett in 2008 said that every day thousands of physicians and patients make myriad choices from available drug options They take into account Differences in effectiveness side effects and drug interactions for each individual patient FDA scientists they say may know a lot about the drugs they evaluate and their average effects on thousands of users But they know nothing About the individualized physiology of each patient on the other hand intensively trained I would say experienced counts for a lot not just training but experienced clinical physicians who do have knowledge of individual patients Are best able to advise them if the drug is appropriate one of the problems. We'll talk about a little bit later If I've got some time is That an individual doctor who has a relationship with an individual patient patient sitting there in the office They have a conversation. They talk about some things that doctor may realize this patient is Incapable of managing Too many drugs at one time or the patient may have budget constraints that cause them to limit The drugs that they will the prescriptions. They will actually fill Or the patient may have peculiar side effects that are unusual Or this particular drug There may be a host of individual constraints on this particular patient So an FDA scientist who may say well, this drug is appropriate and safe and effective and so forth It may not be for that particular patient or vice versa. All right, what have we learned so far? Monopsony buyers government buyers of drugs can discourage long-run pharmaceutical innovation and maybe other therapies We know that advertising does produce some useful information about drugs including new uses that were unknown when the drug was first approved AZT, I'm told which is an Age drug was originally an anti-cancer drug The FDA May avoid deaths from less safe new drugs, but at the cost of suppressing or delaying beneficial new ones The FDA we know also by either corruption or incompetence may allow drugs on to the market that have cost and excess of benefits Rotor shield by ox who mentioned those and then the FDA may assume that the research of its investigators supersedes the knowledge of the patient and special circumstances in clinical medicine Let me go back to this one for a second because I want to make sure you understand. I Am not saying that the FDA should ban a drug or prevent a drug from getting on to the market that may have some negative side effects If I could push a button right here and eliminate the FDA permanently, I would push it without hesitation. I See it as a an imposition on human liberty to have a government agency standing in the way of Me and a provider that I believe produces a product that will make me better off Okay, so I'm not saying that the FDA should approve Should not approve a drug that I would like to consume that I think is going to make my me better off Even if I'm in fact wrong about that however When I have conversations with my students and others about this kind of regulation Many people are under the impression that if a drug is approved by the FDA then it's certifiably safe, and I'm happy with it and the FDA is protecting me against the ravages of greedy drug companies and that's that's the that's the thing keeping me safe is that regulation so the impression that the FDA provides of guarding the public against Bad drugs is itself harmful People may not do as much Investigation doctors may not do as much investigation insurance companies may not do as much investigation into the kinds of drugs that they are willing to approve Because they take the FDA's approval as a stamp of safety and effectiveness when it in fact may not be as the BIOX case shows All right, let's look secondly at bureaucracy and medical costs. I Take the the core of this from Mises book bureaucracy, which appeared in 1944 Mises says that in in this in this book, which I would recommend is very accessible. It's Quite good. He says a government by its nature is Formalistic and rigid you know this by your interactions with the government You know this from stories you've read of the abuses of the TSA You fly through an American airport TSA agent does not care if you're 87 years old and Incontinent and Don't have the the mental ability to understand what's going on as we saw a case just like this not too long ago woman was traveling through an airport with her daughter a granddaughter and subjected to all kinds of intrusive safety inspections by the F by the TSA and The TSA agent does not care about the individual circumstances because the the TSA agent knows The TSA agent will never be held Personally liable for following the rules Okay Any deviation from the rules is a liability for that particular bureaucrat? You know this if you've been stopped by a police officer For speeding doesn't matter what your reasons are it doesn't matter if the costs and benefits of your actions are Such that the benefits are ten times greater than the cost you can explain that until you're blue in the face to the police officer Remember conversation. I haven't been Powell He came to visit Wofford College some years ago, and he said well driving in LA and was in the What do you call it the? HOV lane the high the that left-hand lane they reserve for Multiple passenger vehicles and so forth and he said it was pretty much empty and the other lanes were pretty full so he by himself got into that lane speeding along he was pulled over by a police officer and He told me that the police officer came up and he said You realize of course that all these people over here in this other lane these other lanes are are mad at you for what you're doing and Ben says well, they really shouldn't be because You know I'm leaving their lanes and coming over into this lane. I'm allowing them to go a little faster. So and The police officer says well, I don't think it works that way And Ben says well, that's why you're a cop That's not what that's what he told me I'm sure he got a ticket if that's what he said so But the you know cops or bureaucrats basically they don't care what the reasons were if you're speeding generally They it's if you were speeding then you get a ticket Costs and benefit analysis completely completely out of the question as far as you know your costs and your benefits What they're thinking about is my sergeant will be upset with me if I did not give X number of tickets per month or whatever the System is that they have for measuring the performance of police officers So the core problem for bureaucracy according to Mises is a lack of a measure of success and failure bureaucrats are not operating according to profit and loss Unlike an entrepreneurially driven private enterprise So Misa says it's vain to lament over the fact that the Assyduity carefulness and painstaking work of the average bureau clerk are as a rule below those of the average worker in private business There is no as he says there is no unquestionable yardstick of success and failure Hayek in His well-known article from 1945 the use of knowledge in society if you haven't read that I recommend it He said the sort of knowledge with which I've been concerned is knowledge of the kind which by its nature cannot enter into Statistics and therefore cannot be conveyed to any central authority in statistical form I'm not going to get into the kind of de-homogenization Debate between Mises and Hayek over the nature of knowledge and the nature of socialist calculation problem and that kind of thing But and not that is not a worthwhile debate that you shouldn't read it But what Hayek is saying here is that some information Cannot be by its very nature transmitted in a timely manner to Central authorities so for that reason Hayek is saying It is impossible for a central planner to make good decisions now I would ask in connection to it to the the medical care issue Can a doctor patient encounter be evaluated by a central authority who does not have that individual knowledge of the circumstances of time and place? That goes for an insurance company or a government can a government agent a Thousand miles away from that encounter between the patient the doctor in the examining room Can that central authority say well the doctor did the wrong thing? There's too much information there and what the I'm very concerned about this trend in medicine toward Condensing the results of an examination into a Few items on a on a form There are things that are relevant that are not on the form There are things that are on the form that aren't relevant Newt Gingrich has been at the heart some of this to try to promote this digitization of medical exams and We've seen this appearing in regulation So if you try to scale medical care upward with that doctor patient encounter being scrutinized by central planners some Thousands of miles away does carry risks coding medical coding Current procedural terminology or CPT coding care. It misses information. That's important doctors may be forced to choose do I satisfy the regulator or do I meet the patient's needs and Conscientious doctors who care about the patient may end up doing what is good for the patient, but very bad for In terms of what the regulator wants So they end up bending the rules breaking the rules and so the regulatory authority see this and say well, they're not following the rules They broke the law and Because it's difficult to catch this kind of law breaking they end up making the penalties draconian Don't forget what Mises said It's important to remember he says that government interference always means either violent action or the threat of such action Government is in the last resort the employment of armed men of policemen gendarmes soldiers prison guards and hangman The essential feature of government is the enforcement of its decrees by beating killing and imprisoning physicians are getting hammered By governments who are intent on preserving Their set of regulations without regard for the well-being of the patient now I don't doubt that a lot of regulators think what they're doing is for the good of the patient I don't know how you'd live with yourself if you didn't think that But they are wrong you see this kind of thing in the news. This is from 2009 Physicians snared by growing Medicare fraud strike team strike team criminal charges Are being filed So the government is relying on Medicare data analysis to detect not only fraudulent billing But also quality lapses as they see them for example The June 24th. This is 2009 legal actions focused on services that were suspected to be medically unnecessary Or not provided at all pray tell how is that distant? Evaluator of this physician supposed to tell what is medically necessary or unnecessary Eduardo Perez de Leon in Michigan a former office manager for his wife's internal medicine practice was convicted of 12 felony counts of Medicaid false claims and health care false claims offenses because he coded Patient visits that did not involve a physical examination as office visits The coding was the closest match available consistent with the recommended manuals Physical examination is not necessarily required on every occasion So he spent a year in jail while his family house was threatened with foreclosure and their children were sent back to Puerto Rico To live with family because they couldn't afford to support them He was never able to get a clarification of what the government meant by an office visit a 2000 a 8 I mentioned the AAPS earlier 2000 survey of doctors regarding Medicare fraud found that the system's structure made fraud easy and unintentional errors Virtually unavoidable the system and now is that if that you're a doctor and you make an error It's regarded as fraud 82% of doctors in the survey increased reported increased fear of prosecution or investigation in the last three years 71% said that they were making changes in their practice to avoid the threat of prosecution More than a third were restricting services to Medicare patients 20% reported that they do not want to accept new Medicare patients because of hassles or threats from Medicare Only 16% said it was because Medicare fees were too low Although that may increase with what's going on now Almost a fourth do not accept new Medicare Medicare patients at all 9% only do so under special circumstances More than a third have difficulty finding of Medicare Patients find have difficulty finding physicians willing to accept referrals of their Medicare. I'm sorry More than a third of physicians are having difficulty finding Physicians willing to accept their referrals of their Medicare patients Again hassles and threats of Medicare a 2000 and this is interesting a 2002 GAO study found that 85% of the time Medicare customer service representatives were giving the wrong answer To questions posed by physicians regarding the proper way to build Medicare But if you don't build it properly you could be accused of fraud dragged off to jail The Centers for Medicare and Medicaid Services said well, we're going to do better So 2004 96% of the time Medicare customer service representatives gave the wrong answer Medicare policies and regulations were so complex that their own consume a customer Service representatives. I hate it when governments call their clients or their their subjects Customers like I have some kind of choice I go to the DMV and I'm regarded as a customer Anyway Now this bureaucracy that it misses mentions the problems of bureaucracy the Bureaucracy does not work in favor of patients. Sometimes it's giving hospitals the incentives To churn patients through the hospital as fast as they can you get in you get out because the hospital is Reimbursed according to the diagnosis and not for any treatments to follow Once you get the diagnosis you're in and they want to get you out as soon as they can the physicians have the opposite Incentive because the more tests the more therapy the more they get reimbursed now You might think well, this will cancel each other out nicely. We'll know it doesn't for some patients They'll be in the hospital too long and for other patients. They won't be there long enough Depending on whether the hospital or the physician incentives are dominant All right, I'm running short of time so I'm gonna move forward here One of the key problems that has emerged in medical care since or as I should say as governments have Intervened between the patient and the doctor is That you have a distance in Really a principal agent problem the patient and the doctor are separated by another tier of institutions these intermediaries so care providers Begin to work for the satisfaction of the regulators and the third-party payers either the government or an insurance company Rather than working for the patient You get all these competing standards You get the patients own standards which ought to be dominant You get competition between the employer and the insurance company The insurance companies are bidding They're not they're not so much trying to get the contracts with the patients as they are trying to get contracts with the employers The patients trying to to persuade the government to do something with medical care You get the regulation from the government to the care provider You get the lobbying from the insurance company to the government you get the regulation from the government to the insurance company you get the efficiency standards from the insurance company to the care provider What's being left out here is the connection between the patient and the care provider all these other institutions That are intervening between that critical connection between the patient the care provider 40 to 45 percent. I think actually is more like 50 percent now 50 to slightly maybe slightly over 50 percent 51 percent of money comes from the government to the care providers This is somewhat dated In the last few years, of course, we've seen some big changes in this about 40 percent comes from insurance And this is I was giving this presentation a while back and I should have changed this on the slide It's not 15 to 20 percent coming from the patient to the care providers less than that So who is the care provider going to pay attention to? Patient or the government regulator or the insurance company evaluator less and less often is it the patient? moral hazard those of you that have had economics courses at Principles level understand moral hazard. It's the risk that the an insured person He's going to engage in activities that are undesirable Because they make it more likely Claims will be larger now if you think about how Government provided medical care is Performing compared to the private sector one of the accusations against Private insurance is that they're denying claims. They're not and you know, I get papers students submit to me arguing that Private sector needs regulation because private sector insurance companies didn't pay for my surgery that I needed and so forth Well, Medicare according to a 2008 AMA survey Denies six point eight five percent of its claims, which is higher than any private insurer We can also look as as professor Hammond. We did on Tuesday at Medical systems in other countries and we can see well, how do they perform compared to the relatively Mark and I say that that's an important word relatively market oriented system in the United States By no means is what we have today medical care a market oriented system But it is closer to that than you would see in some neighboring countries comparable countries in 2006 there were two point one practicing physicians per thousand people in Canada two point four per thousand in the United States Canada has eight point eight practicing nurses per thousand ten point five in the unit in the US and I Put professor Hammond's link up here So that if you refer back to this you can the audio as I said is already there on Mises org And you can listen to that talk if you want to refresh your memory on this. This was just about three days ago Medicaid's costs have risen far more than the cost of private health care Even though the health care costs for the young which Medicare does not cover have risen faster than for the old over time Medicaid covers all age groups, but Medicaid costs are rising at similar speeds so The black line on this graph here. This is the cost containment record for these two flagship programs in the United States Medicare Medicaid The black line there is the combined annual per patient cost of Medicare and Medicaid in current dollars from about 2008 The red line there is the combined annual per patient cost of all other health care in the United States current dollars If you want to contain medical care costs Government's not the answer to that it's been driving costs upward Again, we can compare to other countries in 2006 the United States had far more MRI machines per million people Than the UK or Canada and Professor hammer. We mentioned another kind of medical imaging technology that was virtually unavailable in Canada PET. I think Scanners were Essentially not available CT scanners now, I I'm not arguing that technology is equivalent to better medical care, but it's an indicator and In the United States, we've got far more CT scanners than the UK or Canada UK has higher rates of death from heart attack stroke and cancer than the United States These are areas where medical intervention might play some role Helping people be healthier and live longer Canada has higher rates for heart attack and cancer Cancer survival rates are better in the United States and as professor hammer We mentioned so eloquently on Tuesday the wait times to see doctors are far shorter In the United States than they are in countries like Canada and here you see on this chart On the left hand side you have the percentage of patients who have short waits and on the right side Of the graph you have the percentage of patients who have long waits In the United States, which is the red bar 74% of patients have short waits Compared to say Canada where it's 40% have short waits Long waits, it's 10% in the United States and Canada's 42% Do not go to Canada if you want quick medical care Unless I guess you're a dog or a horse in which case you I had to put this in here because You know, of course you think Austin powers and all the bad teeth and everything, but of course There's a reason for this, right Why are the British pulling out their own teeth with pliers in the garage? real story this is this is 2007 It says some English people have resorted to pulling out their own teeth because they cannot find or cannot afford a dentist 6% of those 6% may not sound like a lot, but how many people in the United States? Do you know that do this? 6% of those questions in a survey of 5,000 patients admitted they had resort resorted to self-treatment using pliers and glue Well, they have a two-tier dental system They have either the publicly subsidized treatment through the National Health Service and other people who perform private work, which is more expensive now It it may be publicly subsidized But if you can't get the care because you can't find a dentist willing to accept you because of the shortages and the lines and the waits Then it's effectively not available Three-quarters of those polled said they had been forced to pay for private treatment because they had been unable to find a National Health Services dentist Almost a fifth said they had refused dental treatment because of the cost One respondent in Lancashire, Northern England claimed to have extracted 14 of her own teeth with a pair of pliers I Think you only have 32 right I Took most of my teeth out in the shed with pliers. I have one to go another I don't know if that means one more that needs to be extracted or one more that's left in the mouth I don't know but Other people said they had fixed broken crowns using glue to avoid costly dental work Valerie Hallsworth says She told British televisions TV She had removed seven of her own teeth using her husband's pliers when her tooth toothache became unbearable and she was unable to find a Government dentist willing to treat her Either even the National Health Services is admitting this this system is failing All right to sum up now because I'm out of time Pharmaceutical regulation kills people that's about as quick as I can say that in a nutshell Bureaucracy produces rule-based behavior instead of entrepreneur directed discretionary behavior, so we get to have more death more suffering we We have bureaucrats operating according to their rules, which are not necessarily conducive to the patient's well-being and individual cases and We know also the principal agent problems emerge as third-party payers like the government separate the patient from the doctor Finally, we've seen that moral hazard problems created by third-party payers increase medical costs Leading governments to ration care as they do in countries that have more status medical systems than our own here in the United States I'm sorry that I don't have time to take questions, but I'll be happy to talk to you afterwards If you like I'll stick around for a few minutes until the next speaker comes in and be happy to talk with you as much as I can Thank you